Duty-free imports by dealers hit Pakistan Steel

Mill loses Rs 100 billion in revenues as sales decrease.

KARACHI: Investigators probing corruption in Pakistan Steel Mills (PSM) have unearthed a scam involving more than a dozen companies that caused a revenue loss of Rs50 billion to the national kitty and Rs100 billion to the cash-strapped mill, Federal Investigation Agency (FIA) officials disclosed.

In 2006, the Shaukat Aziz government issued SRO 565, allowing two private companies to import raw materials for manufacturing steel products at zero per cent customs duty. However in 2007, the scope of the concession was extended and a dozen more companies were permitted to import duty-free raw materials.

According to the SRO, the raw material importing companies must install their own manufacturing units, they should change the form of raw material by making value addition so that it does not look similar to the raw material of PSM and they could not sell the raw material in local markets or manufacturers.

However, sources said these companies did not meet the conditions as they neither installed any manufacturing unit nor made value addition. Contrary to the obligation, they also sold the raw material in local markets.

From 2007 to 2010, these companies imported an estimated five million tons of raw material, as trillions of rupees worth of foreign exchange flew out of the country and billions of rupees in revenues were lost in customs duty exemption.

The Federal Investigation Agency (FIA) also found that the companies made fake transportation documents by falsely declaring they had installed manufacturing units in different parts of the country. Instead, they sold the raw material to local companies. As a result, sales of PSM decreased considerably, causing a loss of around Rs100 billion from 2007 to 2010.

Many transportation companies were also part of the scam as they helped the steel dealers in preparing fake documents of raw material supply, sources said.

FIA Director Sindh Moazzam Jah Ansari, while talking to The Express Tribune, pointed out the scam was one of the main reasons that brought PSM down. “It is one of the biggest scams in the country and all cases are being investigated,” he said.

“We issued notices to customs authorities, seeking details of import of steel raw material under zero customs duty but have not received any response despite a passage of two months.”

He said FIA has not been able to take action against customs officials, who say it is very difficult to retrieve data of three years.

Ansari said letters were also sent to the companies involved in the scam, who were asked to provide details of last three years utility bills, income tax receipts, sale and purchase and installation of manufacturing units, but no response was received in that case either.

PSM meets 16 per cent of the total steel demand of the country, while the remaining 84 per cent is met through imports. PSM produces up to 1.1 million tons of steel products per annum, while demand stands at 5.3 million tons. Private companies import more than four million tons of raw material, said Ansari.

A PSM spokesman told The Express Tribune that the SRO caused losses to the steel mill, adding that the mill had demanded government’s standing committee to withdraw the order. The committee will raise the issue in the National Assembly.

PSM Marketing Consultant Sajjad Hussain said the mill has already filed an application in the Federal Board of Revenue (FBR), seeking cancellation of the SRO. PSM has suffered losses of over Rs100 billion due to the order, he added.

Published in The Express Tribune, February 13^th, 2011.